Take a Chill Pill

The stock market has been more volatile lately.  The VIX volatility index, also known as the Fear Index, has traded as high as 17.2 earlier in August, after having traded as low as 9.4 in late July.  As I write this, the VIX is at about 12.3.  The source of this uptick in this volatility has been political and/or news headlines, both here in the US and overseas.  I think the fear of the worst related to these news stories is overblown, and I think investors need to “take a chill pill” and exhibit calm amidst these headlines.  Also, since we have been in a bull market since Wednesday, November 9, 2016, and since every bull market in the past has been followed by a correction, perhaps investors overall are just concerned that the bull run is over, or about to be over.  I believe we remain in a long-term uptrend and these mini-corrections based on scary headlines are opportunities to buy.  Let me go through some of these recent headlines:

  • North Korea:  North Korea is not able to launch nuclear missiles that will hit Guam or any other US territory anytime soon.  Not gonna happen.  They don’t have the technology to do so and won’t anytime soon.  There is evidence out there that the “successful test” that the Norks “announced” early in August may have been a fraud.  This is what forced the VIX to 17.2.  Then, there was the media overreaction to President Trump’s “fire and fury” statement.  What did that even mean?  Trump and the Nork leader are acting like Batman and The Joker.  All political posturing and a lot of hot air on both sides.  The problem was that the media took it all seriously.
  • Nazis:  The US is not being overrun by Nazis.  Nazi ideology is not permeating our politics.  No sane political leader in the US will provide any cover or acceptance for Nazis.
  • The KKK:  Same with the KKK.  They are an extreme fringe group with ideas that are not growing and will not be mainstream anytime soon.  They were more mainstream a century ago.  Extremely sad chapter in American history.  Totally overblown by the media.
  • Government Shutdown:  There is not going to be a government shutdown over raising the debt ceiling, building a wall on the Mexican border, or any other issue.  All we are seeing is political posturing played out in prime time.  With the 24-hour news cycle and many people more engaged than ever (and others less engaged than ever), the media focus on all of these issues is over the top.  Even if there is a government shutdown, it will be short term and will make no difference to publicly-traded companies.
  • Trump’s Ineffectiveness:  Now this is an issue that may have some legs.  The bull market since 11/9/16 has been rooted in the notion that Trump’s economic agenda is expansionary and would be good for public companies.  Regulations would be relaxed, and that would be good for smaller companies, hence the over-performance of the smaller-cap Russell 2000 Index.  With the Obamacare repeal failed (at least for now), there is less investor confidence that Trump’s expansionary agenda, including tax cuts and/or tax reform, will be enacted.  We’ll see, but, again we are witnessing the political process in action, and it isn’t pretty to watch.

IMO

Instead of worrying about nuclear fallout or Confederate statues or the rights of neo-Nazis, let’s look at some positive news.  Corporate profits are up.  Interest rates are low and don’t appear to be going up anytime soon.  Fund flows continue to move into equities.  There is no follow-through to any of these mini-corrections.  This is not to say that I think the stock market will go up more.  It could very well hold steady or pull back some from its current level.  But I think that investors should keep all of these sensational headlines in perspective and keep a closer eye on market fundamentals, which are good right now.